Introduction
IKEA opening its doors in a developing country like Latin America would be a ideal futuristic possibility, of a one of the worlds’ largest companies manufacturing and selling home furnishings. IKEA’s strategy is ONE that is most commended in comparison to other rival companies. This strategy has created the opportunity in which IKEA was able to move up in the global market with more than 300 stores in 35 countries. The main focus of this work would not only be emphasized on the strategy of the company, but also on how it might work at the Colombian market. It would be an brilliant idea for the company to provide their services in Colombia. Some questions may arise from this situation such as “Does IKEA’s strategy match the customers’ behaviour.” In order to derive answers to these questions, first there will be some general information about the company. Secondly there would be specific tools used such as the SWOT Analysis, the Porter’s Framework and the Supply Chain among others. these tools would clarify the business model of the company. Thirdly
IKEA is a growing Swedish company that was founded by Ingvar Kampard in 1943 that sold home furnishings with the vision “to create a better everyday life for the many people”. Form the vision we can say that IKEA is a gigantic store that wants to attain as many customers as possible. The fact that this is the main aspect of the investigation means that the company seeks to have rapid expansion. IKEAs core competence derives from their ability to offer a wide range of well designed functional products at affordable prices.
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The importance of their core competency is revited from the concept of provided from their low pricing schemes. It is quite important to realize that the concept of the company that is mentioned before has been realized. Together with thisIKEA provides a very unique way of shopping and store arrangements that placed success upon IKEA. All of their stores are designed in such a way that customers can walk around and view the various displayed rooms, in which decorative ideas are implanted into the minds of the customer. Their prices are much less when compared to the others thanks to the fact that customers make the decision on what they require. CORE COMPETENCIES
The core competencies of IKEA stems from the ability to provide functional designer products at the lowest cost achievable]. They also contain the strong concept ‘Anybody can make a good-quality product for a high price, or a poor-quality product for a low price. But to make good products at low prices, you need to develop methods that are both cost-effective and innovative. This has been the focus of IKEA since its beginnings in Småland, Sweden. Maximising the use of raw materials and production adaptation to meet people’s needs and preferences has meant that our costs are low. The IKEA way of doing things is to pass these cost savings on to you, our customers’ [www.ikea.com] and they have proven this possible in many ways. They also display a democratic design in their equal balance of function, quality, design and price. They have a very clear and pronounced vision that stands out and is realized ‘To create a better everyday life for the many people.’ [www.ikea.com].
They also display a democratic design in their equal balance of function, quality, design and price. They have also introduced renewable materials in their production lines. The products used are wood metal, plastic, glass and rattan IKEA works towards using as many renewable and recyclable materials as possible. There is also a great strength of long-term partnerships with suppliers. They have worked vigorously together with several partners in the of humanitarian relief efforts, women rights, and children rights on a global perspective. They carried out themselves as the IKEA social initiative in collaboration with save the children and UNICEFF as major partners. [ikeafoundation.org]. To add to the cost saving strategy, IKEA’s stores are conveniently located near the ports of each respective country it operates in.
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IKEA has made advancements from 2003 to present in terms of its products, marketing, durability and so on in the era of an evolutionary change in the environment and costumer wants as the result of technological advancements. IKEA has computerized technology that assists them in their furniture designs. There is also high probability that IKEA uses particular software that automatically balances the business. They use the internet as an ideal point to advertise their products. This can be noted via their website. IKEAs available products are placed in their web page with the costumer having the option to their personal styles. IKEA has rapidly been developing, but there is always more room for growth. IKEA has the ability of entering new markets since it has developed an exclusive brand name. This gives IKEA great potential for further growth in the near future. IKEA needs to keep expanding and at the same time maintain its quality and continuously conduct market research in order to distinguish the differences in culture. They need to consistently be able to adapt to the changes in the environment through proper strategic analysis.
TARGET MARKET
The main target market for IKEA is geared towards the educated, liberal, white collar young people whom are entering their careers, with limited disposable income or now achieving their homes and expanding their families, but characterize a sense of taste towards beauty and modernity. IKEA is a learning organisation continuously expanding and growing with great emphasis on sustainability. There a number of contributing factors, that contribute to IKEA’s growing success and attainment global advantage. The most crucial element of IKEA is their structure and culture which pertains to its stakeholders. Their culture is one that portraits an learning environment style, where mistakes do not create conflict, but is learnt from. There is harmony within the company and their co-workers are seen as the most critical asset towards the continuous growth of IKEA. The belief of IKEA is that equity and diversity ensures that their employees are provided with good working conditions and opportunities for development and talent management. They tend to attain long term relationships with their employees and seek to reach their needs. IKEA is seen on a broad perspective as an “Employer of Choice” in many markets.
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ORGANIZATIONAL STRUCTURE
The present organizational structure of IKEA can be referred to as highly functional with a global market strategy. IKEA is able to sustain a centralized control over their functional activities and simultaneously take advantage of low cost and enhanced quality from international suppliers. It therefore leads to an improved strategic direction and minimized layoffs. IKEA continuously grow overseas, as, the importance of centralized strategic direction will rise. The rapid rate of internationalization springs a range of challenges imposed on the headquarters in Sweden, for example: increasing difficulty of responding to national needs and cultural nuances, impact of emerging demographic trends forcing IKEA to expand its focus strategy to respond to varying nation-level consumer groups and so on. These changes can bring about influences on the IKEAs image as a global organizational structure. In order to resolve this problem, a proper balance between country level autonomy and centralized intervention through increasing subsidiaries and franchisee autonomy must be realized. This can be depicted by diagram in appendix ONE. THE MARKETING MIX
The marketing mix is the detailed planning that is IKEAs major concept in modern marketing. These are a set of controlled marketing tool that come in the form of product, price, place and promotion. The firm perfectly blends the FOUR elements of the marketing mix in order to achieve the response it wants from the market. It should be observed that the marketing mix framework is one which marketers can design marketing programs more systematically. The marketing strategy begins with the product strategy, which covers the physical aspect of the company, such as the goods available to be sold. The combination of the goods and services are the offerings to the target market. Thus, IKEA refer to their range of products, almost everything you need for the home, for example sofas, IKEA design models with different features. The position of IKEA is one that provides affordable priced products at a reasonable quality.
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As a cost cutting measure, IKEA wraps their products in environmental friendly material as compared to fancy wrappings. Corporate Social Responsibility has taken effect. With regard to services, IKEA encourages do-it-yourself but also provide readily available technical help if needed. The price is the sum of money that the consumer gives up in order to gain the potential benefits of using a product or service. In the pricing strategy process, changes in the price is as a result of offering discounts or allowances and altering the payment period or credit terms. IKEA often reduce the price of certain products if they are popular among customers then IKEA can make a larger order, leaving the profit margin wider so it can quote lower prices. There are also various payment plans and credit terms that customers can choose from. Therefore IKEA has a n extensive knowledge and handling with its pricing policy emphasizing customer values and integration of the other elements of the marketing mix.
IKEAs strategy with regards to place stems to make products available to the target market. Activities associated with place such as channels, coverage, assortments, locations, inventory, transportation and logistics. IKEA has established an efficient network of delivering its products from the suppliers to its customers over the years. The idea of flat packaging plays a critical role in cost cutting and transportation, together with being located in suburbs of cities as a cost reduction as well. The promotion of IKEA is extensively used in a constructive manner, integrating the specific blend of advertising, sales, promotion, public relations, personal selling, and direct-marketing tools that are company uses to channel customer value and build customer relationships. IKEA pays a lot of attention to environmental and ethical issues apart from advertising on television, newspaper and delivering brochures with the latest offers. IKEA cooperate with non-governmental organizations such as The United Nation Children Fund (UNICEF) and World Wide Fund for Nature (WWF), which in turn contribute towards a positive corporate image and good public relations. IKEA operate in various markets facing customers from different cultural backgrounds.
The Research paper on The Study of Ikea’s Business Strategy
... about IKEA products, customer services and their availability in stores. Ikea pays much attention to the promotion of enterprise image. One of the communicating strategies ... Rrchard 2007). Ikea’s designing concept is “the same price products, whose design cost less”. Ikea created “module” type of furnishings designing technique .Ikea furniture is divided ...
PORTES FIVE FORCES
There is a porters SIX forces model that is applied to IKEA. The power of buyers is the most important influence on the success of a company. There is limited buyer power because of the existing low price options. Furniture and other small products have substitutes and IKEA has limited alternative choices that make them unique among the competitors. The low price strategy is another response by the company to buyer needs. They have thousands of suppliers that set standards in delivering the required material. IKEA occasionally bid for the contract of some products with multiple companies. IKEAs profit margin also affects the cost of raw material due to their low price strategy. It is inevitable in today’s modern environment not to experience some sort of rivalry. The furniture competitors’ offers different styles and functionality, attracting targets with a low cost in the furniture line. Cratel & Barrel offers furniture in box which is subject in higher prices. Ethan Allen aimed at more upscale markets.
Walmart is equipped in a big box furniture that is categorized under the general store must have items. IKEA is the most successful in delivering the complete package for customers that reflects on weak rivalries. There is no specific product that can be substituted for the IKEA range of products. IKEA keeps up with the latest trends to prevent being outdated. Their advantage is that through their coast cutting and leading technology, IKEA can imitate any new style and introduce the product into stores. With regards to new entrants, IKEA does not reach into the markets of many small towns leaving them open to new competitors. However they are dominant in the city. IKEA has been wide open with their activities to their stakeholders. This involves building trust through good communication with consumers, co- workers, key opinion formers and the press. This can be depicted by appendix THREE.
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STRENGHTS< WEAKNESSESS< OPPERTUNITIES< THREATS
IKEA also has a small portfolio opportunities that that can reinstate what a large president it has already set as large international organization from it’s Swedish roots. They have managed to create much greener products as part as their drive towards a serene environment. IKEA has brought forward the perception of customers taking with them their own bags to the store. Their range of products are engineered from recycled material and are subsequently recyclable. They have managed to provide continuous low prices without compromising quality designs. IKEA furniture prices are as much as 30-aimplanted vision in their minds how the furnishings would appear in their home. IKEA also carries out its business in a cost reduction strategy which involves cutting the carbon footprint through less transport and packaging. IKEA stores around the world are closely situated near the proximity of ports. IKEA’s threats and weakness can be reflected in the same direction as they both stem from negative attributes.
The mass size and scale of its business can be a challenge to control standards on a global perspective. The demand for low- cost products can create the possibility of a compromise on the quality of their products. This may occur due to the company trying to source cheaper manufactures to produce products in a large scale, resulting in the decrease in quality. The obligation to keep the public and stakeholders well informed about its environmental activities can be a challenging one in nature. To conduct meetings on this matter can be very much time consuming and expensive to upkeep. There is always the issue of social trends that generate tips and ideas to customers and employees on reducing their impact on the environment. There is the idea of market forces that makes better use of technology and materials. This reduces costs and benefits to the customer and environment respectively. This can be depicted by appendix FOUR. PESTEL
The political part of IKEA is one that is part of the national or global trends or changes. IKEA is just one of the profound examples that demonstrats a successful firm in both domestic and international business (2003).
The Swedish has found a new style of furniture referred to as the Scandinavian that was combined with “do- it- yourself”. Flat packaged products became a popular transition that created a cult brand (2008).
IKEA has contributed fairly well in the social point of view as they provided opportunities for the people in society. Their employees are entitled to many different benefits such as insurance and pensions (2005).
Moreover, IKEA pledges to continuously provide the highest quality furniture that would stick to their original concept, stylish furniture at low prices.
Due to the economic changes and trend, the company is adopting different strategies that would take an appeal to their customers and their aim towards achieving the customers’ loyalty (2003).
The strength of the company grew from the point in time when the ownership of the business was transferred to the stitching Ingka. This made the company expand into adopting other furniture styles such as dinnerware, lightings and even rugs. However, economic conditions took a toll upon the company’s market performance and therefore a slowdown was declared due to an insufficient strategic direction. IKEA should take the necessary caution when they are analyzing and considering the key issues that is involved in any aspect of the business and act accordingly (2006).
In technological aspect, IKEA used quality technology and systems to promote shorter queues, proper scheduling, tracking and trading patterns, and staffing. IKEA aims towards becoming more productive and to establish employee preferences.
BOWMANS STRATEGY CLOCK
IKEA has created a strategic position on the Bowmans strategy clock. This can be depicted from the following diagram in the appendix. The strategy clock displays the position a company holds within a market.
Conclusion
To conclude this research it is quite clear that we live in an ever changing dynamic world wherewhere the environment is one that is constantly changing. Therefore costumer demands would change as time elapses. IKEA should make relavant transitions in a way to evolve with the environment. There should be high alert for the probability of any rising competition and imitations. It is reality a difficulty to maintain a sense sustainable competitive advantage. IKEA should enhance their marketing strategy via introducing a video presentation concept that would allow the costumer to create a finished product from scratch. In order for IKEA to maintain a competitive advantage they should take technology to a progressive level. IKEA can create a networking structure that can keep them in sync with their strategic alliances
APPENDIX ONE ORGANIZATIONAL STRUCTURE
(Reseearch.insead.edu)
APPENDIX THREE PORTERS FIVE FORCES
APPENDIX FOUR SWOT
STRENGHTS| OPPERTUNITIES|
*They have a clear vision. *They have a strong concept. *They pursue a democratic design. *They have introduced the aspect of renewable material. *They have a long-term relationship with their suppliers | *They have created the aspect of greener products. *They have continued their low hybrid pricing strategy. *There are catalogs available to guide customers on home furnishings. *They were able to cut down on the carbon footprint through less trans port and packaging.| WEAKNESSESS| THREATS|
*The size and scale of the business may create difficulty to control standards. *The demand for low cost products must measure against quality. *The ability to keep stakeholders informed can be time consuming and costly.| *Social trends *Market forces *Economic factors|
http://www.ikea.com/ms/en_US/pdf/yearly_summary/Welcome_inside_2010_update.pdf
(economist.com)
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4. Normean and Ramirez [1993]
5. .[Bingxin Li & Juan Li,2008].
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[Accessed: 20th June, 2012]
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